Jerome Powell vs The Committee – Raising Interest Rates while You’re in Retirement
The Financial Chess Game:
In a much-anticipated move, the Federal Reserve, the central bank of the US, raised short-term borrowing rates to a target range of 3.75-4%. While this was expected, interest rate moves are always news for your money.
I am Chris Perras with Oak Harvest Financial Group in Houston, Texas, and welcome to our weekly stock talk podcast, keeping you connected to your money. Before moving on to discuss last week’s Fed meeting, its rate increase, and trying to, read between the lines, please make sure you hit that subscribe button and tap the notification bell so that you’ll be notified when we release our latest content.
The Fed moves are almost always news for you, your family, and your money. As it has been all year, markets were once again whipsawed on the day of the Fed’s interest rate increase.
Why? Because the release comes in two parts. There’s the written committee statement and then about 15 minutes later there are the Chairmen’s comments and questions and answers. The markets initially reacted positively rallying to 3900 on the S&P 500 on the committee statement which read more dovish.
The dovish change was the Fed discussed factors that would influence policy going forward, saying that the committee would “take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.” Code for, we will be forward-looking and anticipatory. We know a slowdown is coming in the economy.
This was taken as bullish by markets. The Fed saying that a slowdown in the pace of future hikes is coming.
They alluded to future rate hikes being smaller than the last four consecutive 0.75 percentage point rate increases, And then Jerome Powell started talking, started answering questions, and the S&P500 dropped to 3760 in a straight line over the last 60 minutes of trading as computers took over trading with no other markets in the world open.
What did he say that markets didn’t like? Well, while he alluded to this likely being the beginning of the slowdown in rate increases, he said that the “incoming data since the last meeting suggests that the ultimate level of interest rates will be higher than previously expected.” Meaning the terminal rate for interest rates might need to end closer to 5+% than the previously thought 4.5%.
From Powell’s comments, you would conclude the Fed should tighten more than they would otherwise so they can take out some insurance.
Powell said it was premature to think about pausing. They’re not going to pause anytime soon. Seems pretty clear-cut, yes? Well, it’s not to me. Why? Because I take you back to EXACTLY a year
The November 2-3, 2021 Fed meeting was followed by the November 23 release of the Fed minutes which also happened to be the almost exact top in price and time for the S&P 500. Here’s the chart on the S&P500 with the day of the November minutes in 2021 highlighted. Yes, it made a slightly higher high at the end of the year on the 3 to 5 days of the end-of-year markups.
Here’s a link to a CNBC article of the Federal reserve Committee, November 2021 meeting minutes: https://www.cnbc.com/2021/11/24/federal-reserve-releases-minutes-from-its-november-meeting.html
from a year ago. What you will see is that exactly a year ago, the dynamic and concerns on the Fed Committee and with Jerome Powell were EXACTLY 180 degrees from today. Back then, the minutes showed the members were concerned about inflation and willing to tighten policy should it continue to run hot.
The minutes noted that the officials would be willing to raise interest rates sooner and faster than currently anticipated. And what did Jerome Powell’s speech emphasize
back then in early November 2021? Employment and only employment. He had almost ZERO concern about inflation. His almost entire focus was employment and jobs, while the committee was concerned about inflation, he had very little.
That’s exactly 180 degrees opposite from today. Today, Mr. Powell is 100%, all in, attacking inflation, while the committee in the background, who was right in November 2021 is saying,
whoa JP slow down.
We have a dual mandate and the other factor we are responsible for is about to hit a wall. They are saying we are nearer to the end of the rate cycle, not the beginning, and we are going to be going materially slower. And viewers, that would be a good thing for stocks, bonds, and your money in 2023.
So I ask you, whom should we believe about the future, the economy, and future Fed moves in 2023?
The committee in the background, who was correct in November of 2021? Or Jerome Powell who was out front and was wrong? Are you trying to meet your needs or your greed in retirement?
Give us a call here and schedule an initial consultation with an Oak Harvest Advisor. We will sit down with you, and help you and your family do the math to figure out if you will be able to meet your retirement goals and needs.
CFA®, CLU®, ChFC®
Chief Investment Officer, Financial Advisor
Chris is a seasoned investment professional with over 25 years of experience working with some of the most successful money management firms in the world. Chris has made it a point in his career to adapt as the market landscape changes, seeking to utilize the appropriate investment strategy for a given market environment. His transition from managing billions of dollars at the institutional level to helping individuals and families retire is guided by a desire to see first-hand the impact he is making in the lives of clients at Oak Harvest.